AP Microeconomics

3.1 Elasticity Analysis Assignment

Visit the following link (http://www.mackinac.org/article.aspx?ID=1247) which provides a list of

products and their elasticity coefficients. Then answer the following questions. Each question will be
graded out of 3 points, for a total of 9 points possible for this assignment.

1) If you had to choose one product from the list to tax in order to raise revenue for the government,
which one would you choose? Explain your reasoning.

I would tax gasoline. The reason I would tax gasoline is because it has low elasticity (because people
virtually have to buy it), that it commands a high price (typically, present situation is an exception) and
that it is purchased regularly and in relatively large quantities.

2) What types of goods appear to be very demand sensitive to changes in price? Explain why you think
these products have this characteristic.
Fresh tomatoes, Chevy automobiles, fresh peas.
The types of goods seem to be luxury-ish goods – fresh food, expensive automobiles, etc.
The reason that these goods have property is because they are unnecessary to the consumer – the
consumer can simply not purchase the product and have little cost / loss (the opportunity cost of not
purchasing the product is relatively small).

3) Airline travel appears in both the inelastic and elastic parts of the list. According to this list, explain
what consumers should understand about elasticity and airline travel?
Airline travel in the long run is very elastic, but in the short-run it is not very elastic. This is because
consumers in the short-run need the flight irrespective of the price – if I know I need to fly somewhere
in 7 days, I have to buy whatever’s out there regardless of the price. But if I know I need to travel
somewhere in 7 years, I have all the time in the world.
Consumers should understand they ought to start searching as soon as possible!